Perth, Apr 3, 2006 (ABN Newswire) - Resolute Mining Limited is pleased to announce that its Board has approved an investment of up to US$120 million for the redevelopment of the 6 million ounce Syama gold mine in Mali.
"This is a major decision for the Company" said CEO Peter Sullivan. "It will see the addition of a third mine to its operating base and over 250,000 ounces per annum of new production, lifting total annual production to well over 500,000 ounces per annum".
The Company will commence immediately a range of activities including personnel recruitment, selection of principal engineer for design and construction and various statutory approval processes in a build up to the construction phase which is expected to commence later this year.
The Company is currently considering a number of fund raising avenues to finance the redevelopment of the project including conventional debt and equity raisings as well as possible asset sales and other corporate activity. Lycopodium Engineering was commissioned earlier this year to prepare an update on the Feasibility Study capital cost and operating cost estimates for the Syama Project based on estimated pricing to the first quarter of 2006.
The high level of activity in the resources and energy sectors has put pressure on all aspects of project development and operations and this has resulted in an increase to the capital and operating cost estimates from the Feasibility Study, previously released.
Nevertheless, the increase in the gold price over the same period has lifted significantly the overall revenue from the project, giving rise to returns above the Company's hurdle rate.
A summary of current estimates and the comparison with those of the Feasibility Study are shown in the Tables 1 and 2 below.
Table 1 Capital Cost Estimate Summary
2006 2004
Total Total
US$ US$ %
Area Description Millions Millions Change
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Site Establishment and
Construction Costs 3.09 2.27 36%
Treatment Plant 45.88 40.67 13%
Infrastructure and Services 10.77 7.59 42%
Mining 5.65 5.23 8%
EPCM 15.96 12.60 27%
Owners Costs 15.27 13.66 12%
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Grand Total $96.62 $82.02 18%
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Table 2 Operating Cost Estimate Summary
Area Description 2006 2006
Total Total %
US$/t US$/t Change
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Labour - Mining 0.60 0.57 5.3%
Mining Contract 11.13 11.34 -1.9%
Other Mining 0.53 0.49 8.2%
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Subtotal Mining 12.26 12.40 -1.1%
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Labour - Processing 1.21 1.14 6.1%
Consumables 3.54 2.96 19.6%
Power - Process 10.86 9.66 12.4%
Maintenance materials 1.41 1.28 10.2%
Other Process 0.07 0.06 16.7%
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Subtotal Process 17.09 15.10 13.2%
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Labour - Admin 0.97 0.94 3.2%
Power - Admin 0.54 0.48 12.5%
Others - Admin 2.58 2.44 5.7%
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Subtotal Admin 4.09 3.86 6.0%
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Grand Total $33.44 $31.37 6.6%
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The cost estimates include a scope change to incorporate an in wall ramp as part of the open pit mining design. This has the advantage of providing early access to the considerable underground resources (approximately 4 million ounces) that exist immediately below the pit but are not included in the Feasibility or Update Study.
It also includes for the worst case cost of diesel power generation at the site based on current diesel prices. Work is progressing on possible use of excess heat from the roaster to provide energy for a portion of the generation requirements, which if feasible would lead to a significant reduction in power costs.
These changes mean the average cash cost estimate, which includes preproduction mining costs, has increased from US$291 per ounce to US$336 per ounce.
However, counteracting this has been the increase in the gold price from US$425 per ounce at the time of the Feasibility Study to currently around US$580 per ounce. The increased revenues as a result have lifted the project returns significantly.
Table 3 summarises the revised project economics and shows a doubling of the IRR from 11.9% to 25.8%, using a gold price of US$550 per ounce, and a fourfold increase in NPV from US$20 million to US$86 million, inclusive of an assumed 6% government royalty.
Table 3 Comparative Economics
Study Gold Capex Op. Costs NPV IRR Cash
Version Price US$ US$/t US$ % Cost
US$/oz m milled m US$/oz
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Feasibility
Study $425 $82.05 $31.37 $20.30 11.9% $291
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Update Mar
2006 $550 $96.62 $33.44 $86.10 25.8% $336
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Increases in resources and energy construction activities have meant a considerable tightening in the engineering sector. As a result the estimate of time to complete the project has increased from 18 months to 2 years, which reflects a slightly longer design and procurement period as well as construction time.
The Company intends to build up over the next six months to a full commitment to the project. Principal project activities over this time will include:
- The completion of the fiscal terms agreement with the Government of Mali. Negotiations are well advanced and a package is expected to be concluded shortly.
- Recruiting of key staff.
- Finalising the evaluation of the Roaster Power Option thus enabling the optimum generating system to be determined.
- Borefield development.
- Finalising the revised Environmental Impact Statement.
- Selection of the principal engineer and implementation of design and construction.
- Reviewing mining proposals and appointing an open pit mining contractor.
- Accelerated exploration on the Syama concession.
A recent review of historical drilling beneath the Syama Extended and A21 deposits, four and seven kilometres north of Syama, respectively, outlined more than 300,000 ounces of mineralisation beneath these pits. The systems are open, with extensive alteration beyond the areas already drilled and with significant potential for increased resources.
